Dividend Treatment

presumably you’re asking about dividends paid out of pre-acq profits? In which case, the pre-acq element should be deducted from the cost of acquisition to arrive at a “net cost of acquisition” and only the post acq element should be credited by the parent into the parent’s own I/S

You have to remember that retained earnings – ie accumulated profits from this and earlier years – is a CREDIT figure – the same as share capital is a credit figure. They are both parts of the aggregate figure referred to as “shareholders’ funds” that is, they are both amounts due to the people who own the company.

When a dividend is declared as payable to these owners, that reduces the amount which the company owes to the shareholders by way of retained earnings. At the same time, it increases the amount owed to the shareholders in the form of dividends. But whereas the dividend will be paid within the next 12 months ( and is therefore shown as a current liability ) the amount in retained earnings ( having deducted the proposed dividend ) may possibly in fact NEVER be paid to the shareholders

debs 9 is Laimonas’ 90% share of the 10 dividend declared by Kristine

apau were you exempt F3? Which bit do you want explaining again? Dividends paid out of pre-acquisition profits should be credited against the cost of the parent’s investment whereas dividends paid by the subsidiary out of post-acquisition profits will be credited by the parent in their own Income Statement.

Or is it the fact that an appropriation of profit ( the dividend ) should be deducted from retained earnings in the dividend-paying company?